THE EVALUATION OF COMPANIES’ INVESTMENT ATTRACTIVENESS BASED ON СASH FLOW ANALYS.

L. O. Shkvarchuk, R. A. Slav’yuk

Abstract


We study the method of cash flow analysis for evaluating the companies’ investment attractiveness. First, we introduce a new measure of effectiveness of the company’s investment activities that is significantly better than the measure commonly used in the literature. We find that invest cash flow influences on the level of company’s investment attractiveness more than net income do it. Second, we study how invest cash flow relates to both current and lagged operation cash flow. Finally, we employ several new estimators to correct for measurement investment costs. Our tests offer a number of methodological contributions that substantially improve estimates of companies’ investment attractiveness. These approaches are universal, is not dependent on the company’s industrial structure, its size or ownership.

Keywords


investment attractiveness; cash flow potential; company investment cycle; investment costs.

References


Carpenter R. E., & Guariglia, A. (2003) Сash flow, investment, and investment opportunities: New tests using UK panel data. Discussion Papers in Economics, 03/24, 275-301.

Cleary, S. (1999). The Relationship between Firm Investment and Financial Status. The Journal of Finance, 54(2.), 673-692.

Fazzari S.,Glenn Hubbard, R., & Petersen, B. (2000). Investment–Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales. The Quarterly Journal of Economics, 115(2), 695-705.

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Gilchrist S., & Himmelberg, C. (1995). Evidence on the role of cash flow for investment. Journal of Monetary Economics, 36(3), 541-572.

Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups. The Quarterly Journal of Economics, 106(1), 33-60.

Chen, H. J., & Chen, S. J. (2012). Investment–cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series. Journal of Financial Economics, 103(2), 393-410.

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Lewellen, J., & Lewellen, K (2014). Investment and Cash Flow: New Evidence. Tuck School of Business Working Paper, 2010–77, 235-376.

Mizen, P., & Vermeulen, P. (2005). Corporate investment and cash flow sensitivity what drives the relationship? European central bank. Working paper series, 485, 42.

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Shkvarchuk, L.O. (2013). Сoncept of evaluating the effectiveness of investment policy on the basis of the cash flow analys. Socio–economic problems of the modern period Ukraine. The problems of integration of Ukraine into the international financial system, 1(99), 202-211.


GOST Style Citations


Carpenter, R. E. Cash flow, investment, and investment opportunities: New tests using UK panel data [Text] / Robert E. Carpenter, Alessandra Guariglia // Discussion Papers in Economics. – 2003. – № 03/24. – P. 275–301.

Cleary, S. The Relationship between Firm Investment and Financial Status [Text] / S. Cleary // The Journal of Finance. – 1999. – Vol. 54, Issue 2. – P. 673–692.

Fazzari, S. Investment–Cash Flow Sensitivities are Useful : A Comment on Kaplan and Zingales [Text] / Steven Fazzari, R. Glenn Hubbard, Bruce Petersen // The Quarterly Journal of Economics. – 2000. – Vol. 115, № 2. – Р.695–705.

Fazzari, S. Financing Constraints and Corporate Investment [Text] / Steven Fazzari, R. Glenn Hubbard, Bruce Petersen // Brookings Papers on Economic Activity. – 1988. – Vol. 19, Issue 1. – P. 141–206.

Financial Analysis CS [Text] : Sample Reports. – Thomson Reuters ; Tax & Accounting, 2008. – 70 p.

Gilchrist, S. Evidence on the role of cash flow for investment [Text] / S. Gilchrist, C. Himmelberg // Journal of Monetary Economics. – 1995. – Vol. 36, Issue 3. – P. 541–572.

Hoshi, T. Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups [Text] / T. Hoshi, A. Kashyap, D. Scharfstein // The Quarterly Journal of Economics. – 1991. – Vol. 106, Issue 1. – P. 33–60.

Chen, Huafeng (Jason) Investment–cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series [Text] / Huafeng (Jason) Chen, Shaojun (Jenny) Chen // Journal of Financial Economics. – 2012. – Vol. 103, Issue 2. – P. 393–410.

Kaplan, S. Do Investment–Cash Flow Sensitivities Pro­vide Useful Measures of Financing Constraints? [Text] / Steven N. Kaplan, Luigi Zingales // The Quarterly Journal of Economics. – 1997. – Vol. 112, № 1. – Р. 169 – 215.

Lewellen, J. Investment and Cash Flow: New Evidence [Text] / Jonathan Lewellen, Katharina Lewellen // Tuck School of Business Working Paper. – 2014. – № 2010–77. – P. 235–376.

Mizen, P. Corporate investment and cash flow sensitivity what drives the relationship? [Text] / Paul Mizen, Philip Vermeulen // European central bank Working paper series. – 2005. – № 485. – 42 p.

Rauh, J. Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans [Text] / Joshua D. Rauh // The Journal of Finance. – 2006. – Vol. LXI, № 1. – P. 33–71.

Tobin, J. A General Equilibrium Approach To Monetary Theory / James Tobin // Journal of Money, Credit and Banking. – 1969. – Vol. 1, № 1 – P. 15–29.

Хахонова, Н. Н. Учет, аудит и анализ денежных потоков предприятий и организаций [Текст] / Н. Н. Хахонова. – Москва ; Ростов–на–Дону : Март. – 2003. – 253 c.

Шкварчук, Л. О. Концепція оцінювання ефективності інвестиційної політики підприємства на засадах аналізу грошових потоків [Текст] / Л. О. Шкварчук // Соціально–економічні проблеми сучасного періоду України. Проблеми інтеграції України у світовий фінансовий простір : зб. наук. праць / НАН України, Ін–т регіон. досл. ; відп. ред. В. С. Кравців. – Львів, 2013. – Вип. 1 (99). – С. 202–211.





DOI: https://doi.org/10.18371/fcaptp.v1i22.109943

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ISSN (print) 2306-4994, ISSN (on-line) 2310-8770